Understanding Gratuity Payouts: How Are They Calculated for Different Joining Years?

Can someone clarify the below questions related to gratuity payout?

Gratuity Calculation Methods

1) Some organizations do the gratuity payout as follows: Can someone help me understand if this is from the Payment Act or the organization's goodwill? If the employee has joined the organization prior to FY 2004, the gratuity is calculated as Last Monthly Basic * No. of years of experience. If an employee joined on/after 2004, it is computed as Last Monthly Basic * No. of years of experience * 15/26.

Specific Gratuity Calculation for 2003 Joiners

2) For an employee who joined in 2003, what is the gratuity calculation to be used?

Determining the Number of Years for Gratuity Calculation

3) Should the number of years be calculated as:
i) The number of years between the date of joining and the date of submission of resignation, or
ii) The number of years between the date of joining and the last day of service (inclusive of the notice period)?

Thanks in advance!!

Gratuity Eligibility and Calculation

In deciding the eligibility and calculation of gratuity payable as per the Payment of Gratuity Act, the year of joining, whether 2004 or 2005, is immaterial. It is purely based on the completion of five years in the organization, calculated from the date of joining until the last day of work. The amount of gratuity is calculated on the last drawn salary, equating to 15 days' salary for every completed year of service or a fraction of a year over six months.

Although the eligibility factor has been disputed in some court verdicts, which allowed gratuity for individuals who have not completed five years of service but have completed four years and 240 days in the fifth year, none of these verdicts has stated that it is based on joining prior to a specific year. Therefore, it should be understood that gratuity is to be calculated based on the employee's date of joining.

Regards,
Madhu.T.K

Any person who has completed five years of service in the same organization, that's 4 years + 240 days, will be eligible for gratuity as per the Payment of Gratuity Act, 1972.

- Gratuity is applicable in every factory, oil field, plantation, port, mine, railway, shop, and establishment employing 10 or more employees.
- As per Section 2 (S), 15 days' wages for every completed year as if the month comprises 26 days at the last drawn wages. Therefore, the calculation that you have provided is correct.
- Calculation of price-rated employee (Section 4) - 15 days' wages for every completed year on an average of 3 months' wages.

As per your second query, as Mr. Madhu T.K. answered, it should be calculated based on the joining of the employee.

Regards

In your formula, please make it "number of years of service" instead of "number of years of experience." Though it is a common fact that each year in service makes a person experienced in service, the Act uses the term 'service' and not 'experience.'

Thanks and regards,

Gratuity Calculation Method

Whether the employee joined before or after 2003, gratuity should be calculated as follows: last drawn Basic + DA divided by 26, multiplied by 15, then multiplied by the number of completed years of continuous service, subject to a maximum of Rs ten lakhs. Years of service are to be reckoned back from the date of relieving to the date of joining.

Regards,
Varghese Mathew
BIL, PGDPM
[Phone Number Removed For Privacy Reasons]

I resigned after completing 4 years and 243 working days (excluding weekly off and leave) [4 years, 10 months, and 3 days with all leave and weekly off]. In my full and final settlement, the company denied paying gratuity.

How to Proceed Legally for Gratuity Claim

How should I proceed now and approach through the legal route? Whom should I contact and how?

Regards,
Anand Parikh